The Economy & You #33: Scarcity and Choice

One of the most basic principles in economics is the concept of scarcity. In economics, there are unlimited wants that need to be met by limited resources. People want more money, more free time, and for those of you who have children, more toys or video games. These never ending wants cannot be satisfied by the resources that a family or a society has available. This is scarcity.
Because scarcity exists, people must make choices or trade-offs. Economics examines how people and societies deal with scarcity. Economics studies the decisions made that are made about using the resources available to meet as many wants and needs as possible.

When scarcity occurs, choices must be made. If the market does not have the newest iPad because there are no more in local stores, you have to decide whether you really want an iPad. If you do, then you will have to find another place that sells them. The lack of supply has created a scarcity of iPads.

Another result of scarcity relates to price and the willingness to pay. If you really enjoy tomatoes and they are normally at a low price, it is very likely that those tomatoes will be at a higher price when they are scarce. Therefore, you will have to decide if you want to pay a higher price for those tomatoes. You may even have to determine whether you can afford to buy them at all. You have a specific amount of money and you must decide how important tomatoes are to you in the list of goods and services that address your needs and wants.

Scarcity is an important force in economics. Scarcity addresses fundamental economic questions like: what goods should be produced, how many goods can be produced, who can obtain the goods produced, and what price will the goods be sold? Scarcity is central in understanding the concepts of supply, demand, opportunity cost, and utility.

As we continue to review economic concepts we will revisit concept of scarcity and choice as we transition from a fictional one person economy where individual choices and societal choices are the same to a complex economy where multiple producers and consumers exist. Still, the basic decisions that describe the complex economy must also be made in a simple economy, the decisions as to what will be produced with scarce resources and how they will be allocated must be made regardless how simple or complex the economic model.